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IOPS Toolkit for Risk-based Supervision. Module 3: Risk Identification. RBS Process. Risk Focus. Driven by: Resources Objectives Nature of Pension System DB funds – focus on funding + solvency, as well as trustee oversight ability

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iops toolkit for risk based supervision

IOPS Toolkit for Risk-based Supervision

Module 3: Risk Identification

risk focus
Risk Focus

Driven by:

  • Resources
  • Objectives
  • Nature of Pension System
    • DB funds – focus on funding + solvency, as well as trustee oversight ability
    • DC funds – focus on investment risk, costs and operational risks. The degree of competition dictates the focus within DC systems (e.g. an open market conflict of interest issues, misselling problems, information provision and cost control will be major issues on the supervisor’s radar)
  • Risk appetite
risk indicators
Risk Indicators
  • Qualitative and Quantitative
  • Quantitative
    • DB – funding + solvency tests (also for DC with guarantees)
    • DC – VaR + replacement rate targets (more controversial)
  • Quantitative for non-financial risks – e.g. rank following 0-1
    • DB - number of complicating features, such as early retirement benefits, indexation etc.
    • DC - large range of investment options; central fund for all allocating investment earnings on transparent, smoothing basis; level of outsourcing
  • But qualitative indicators involving judgement also required
systemic risk
Systemic Risk
  • Some risks identified from ‘bottom up’ –i.e. individual risk assessments reveal problems for the sector as a whole
  • Others from ‘top down’ – i.e. trend analysis shows risk all funds exposed to
  • Systemic risk particularly important
    • When overseeing large number of fund
    • In developing markets with new pension systems
    • At particular times (e.g. extreme market volatility / financial crisis)
  • Build into overall risk analysis
    • Within individual risk assessments / or as separate layer
    • By pre-populating scores for these risks/ or leaving them to the individual supervisor’s judgement
systemic risk hfsa sources of information
Systemic Risk – HFSA Sources of Information
  • Findings of institution assessment
  • Monitoring information and messages
  • Trends revealed in customer complaints
  • Consumer protection (monitoring of product and service advertisements, information from interest-protection organisations)
  • Market supervision (market data)
  • Signals from macroeconomic and sector analysts (monitoring and analysis of risk priorities, domestic and international trends and phenomena)
  • Information from contact persons of the institutions with below average impact rating
  • Information from trade associations
  • Information from supervised institutions (e.g. requests for opinions)
  • Information received from law enforcement and licensing
  • Information received from domestic and foreign partner authorities
  • Information forwarded by domestic and international working groups
  • Other sources